Morgan Stanley Broker Charged in Post-It Insider Scheme

Steven Metro, the managing clerk at Simpson Thacher & Bartlett LLP in New York, was accused of stealing confidential information on mergers, acquisitions and tender offers and tipping a middleman who passed it to Vladimir Eydelman, a broker who worked at Oppenheimer & Co. and later Morgan Stanley, federal authorities said. Photographer: Victor J. Blue/Bloomberg

March 19 (Bloomberg) -- A Morgan Stanley broker and a law
firm employee were charged with insider trading in a scheme that
included passing tips on notes and napkins that a middleman
swallowed under the big clock in Grand Central Terminal.

Steven Metro, 40, the managing clerk at Simpson Thacher &
Bartlett LLP in New York, was accused today of stealing
confidential data on 13 corporate transactions and tipping a
friend who passed it to broker Vladimir Eydelman, 42, according
to an arrest complaint in U.S. court in Newark, New Jersey.

Metro stole data from Simpson Thacher’s computers and gave
it to the middleman in New York bars and coffee shops, according
to the U.S. Securities and Exchange Commission, which also sued
the men. Eydelman traded from February 2009 to February 2013 for
himself, family, friends and clients, in a scheme that made more
than $5.6 million in illicit profit, prosecutors said.

In his meetings with the middleman, Metro would pass inside
information by typing the names of companies involved in
transactions on his mobile phone, according to the SEC. Metro
pointed to the names or ticker symbols on his phone to tell the
middleman which company was being bought or sold.

Eydelman would meet the middleman near the large clock at
Grand Central and show him a Post-It note or napkin with the
stock ticker symbol of the company to be acquired, the SEC said.

“The middleman then chewed up, and sometimes ate (with
Eydelman watching), the Post-It note or napkin to destroy
evidence of the tip,” the agency said in its complaint.

The men today appeared in court, where a magistrate judge
set bail of $1 million for each one.

Two Brokerages

Eydelman began his illegal trading at Oppenheimer & Co.,
where he worked from March 2001 to September 2012, when he
joined Morgan Stanley and continued the trades, the U.S. said.

Eydelman’s attorney William Silverman declined to comment
on the charges. Metro’s attorney Michael Rosen said the charges
are only allegations and his client is presumed innocent.

“We were just informed of the arrest this morning and will
cooperate fully with the authorities as they pursue this
matter,” said James Wiggins, a Morgan Stanley spokesman.
“Obviously we do not tolerate insider trading and will take
appropriate action based on the facts. The individual has been
placed on leave pending further review.”

Stefan Prelog, an Oppenheimer spokesman, said the company
“strongly condemns any form of insider trading activity” and
“will continue to cooperate with regulatory authorities in the
investigation of these allegations.”

Metro Fired

Simpson Thacher fired Metro today after learning of the
charges, Brooke Gordon, a spokeswoman for the law firm with Sard
Verbinnen & Co., said in an e-mail. The firm will review its
systems and procedures, she said.

“Client confidentiality is of the utmost importance to
Simpson Thacher and we are reinforcing that principle to all of
our lawyers and administrative staff,” she said.

The middleman, who wasn’t identified, cooperated with the
FBI and recorded conversations with Metro and Eydelman, the
government said. In one meeting, Eydelman discussed his
difficulties in masking how their trades were based on inside
information, according to the FBI complaint.

“It’s a lot of risk,” Eydelman said on Feb. 6, according
to the complaint. “I lost my ability to get on every street
research note, now. It’s hard to provide documentation for what
you’re doing. Why you’re doing it.”

OfficeMax, Sirius

The men invested more than $33 million over four years to
buy securities in 13 transactions, trading in companies
including OfficeMax Inc. and Sirius XM Holdings Inc.,
authorities said.

Eydelman used proceeds of the scheme to buy a 2011 Maserati
GranTurismo for $117,700, tens of thousands of dollars in
jewelry and a house in Colts Neck, New Jersey, according to U.S.
Attorney Paul Fishman.

Metro, of Katonah, New York, is charged with nine counts of
securities fraud, Eydelman with eight counts of securities fraud
and each with four counts of tender offer fraud. They were also
charged with conspiracy to commit securities fraud and tender
offer fraud.

The middleman is a 40-year-old mortgage broker from
Brooklyn, New York, who has been friends with Metro since 1995,
when they attended Touro College of Law in Central Islip, New
York, according to the FBI and SEC complaints. They met for
drinks, attended social functions together and went to casinos
in Atlantic City, New Jersey, according to the SEC.

Brokerage Customer

Since at least 2003, the middleman has been a brokerage
customer of Eydelman, the SEC said. Eydelman made trades for the
middleman and his family members for 12 of the 13 securities.

The middleman reached a deal resulting in “over $168,000
being apportioned to Metro as his share of profits from the
insider trading scheme, in addition to the profits reaped by
Metro from his personal trading” in two trades, the SEC said.

The first illicit trades preceded the announcement in
January 2010 by Tyco International Ltd., a Simpson Thacher
client, that it would acquire Brink’s Home Security Holdings
Inc., the SEC said.

Two weeks later, the Chicago Board Options Exchange sent an
inquiry to Oppenheimer, which forwarded it to Eydelman, who said
he based the trades on research reports, the SEC said. After
later trades, Eydelman also sent contrived e-mails to the
middleman saying trades were based on research reports.

Eydelman made a series of trades in 2012 after learning of
a possible transaction in Company A that never took place. He
invested about $7.9 million on behalf of himself, his family and
customers to buy shares and options in Company A, although the
deal never materialized and customers lost money, the SEC said.

Forged Signature

One customer complained, and Oppenheimer gave the customer
an agreement they purportedly signed giving Eydelman
discretionary authority over the account, the SEC said. Eydelman
later told the middleman he forged the customer’s signature, the
SEC said. He left Oppenheimer soon after that, the SEC said.

“Law firms are sanctuaries for the confidential treatment
of client information, and this scheme victimized not only a law
firm but also its corporate clients and ultimately the investors
in those companies,” Daniel Hawke, chief of the SEC Enforcement
Division’s Market Abuse Unit, said in a statement.

In 2012, attorney Matthew Kluger was sentenced in Newark to
12 years in prison, the longest term ever imposed in an insider-trading case, for stealing corporate merger tips from four law
firms over 17 years.

In another case, two Ropes & Gray LLP lawyers in New York
went to prison for leaking tips to former Galleon Group LLC
trader Zvi Goffer, who was also jailed, beginning in 2007.

The cases are U.S. v. Metro, 14-mj-08079, and U.S.
Securities and Exchange Commission v. Eydelman, U.S. District
Court, District of New Jersey (Newark).